Dollar’s Rise Erodes U.S. Manufacturing Competitiveness

The dollar’s rise compared to other currencies over the past year has made U.S.-based manufacturing less cost-competitive, particularly compared to some top European exporting nations, a new study from the Boston Consulting Group finds. But U.S. manufacturing competitiveness fell relatively little compared with major exporting countries such as China, India, South Korea, and Mexico, largely because currency value fluctuations have, up to now, been less pronounced in those countries, the study finds.

An update of earlier studies on the cost competitiveness of U.S. manufacturing, the BCG study was release last month, before China’s government launched a devaluation of that country’s currency. The study ranks countries’ manufacturing cost-competitiveness using an index based on four primary drivers: wages, productivity growth, energy costs, and currency exchange rates.

While wages in previously-inexpensive countries such as China have continued to climb, currency fluctuation has had the biggest impact on the manufacturing cost competitiveness of leading exporters, the study found. Thanks largely to the growing value of the dollar, countries including Germany, The Netherlands, Italy, France, Russia, and Canada saw their manufacturing cost competitiveness relative to the U.S. climb by between six and twelve percentage points over the past year.

Meanwhile, other major exporters remained relatively even with the U.S. in terms of manufacturing cost competitiveness. Mexico, and the U.K. saw their manufacturing cost-competiveness improve 2% compared to the U.S., while China and India saw theirs worsen by 1%.

While the BCG index ranks the U.S. at 100 in overall manufacturing cost-competitiveness, it ranks China at 97, Germany at 115, the U.K. at 107, Mexico at 90, and India at 86.

The BCG study found that the growth of productivity-adjusted manufacturing wages in China has slowed to 3% in 2015 after soaring by 156% between 2004 and 2014. Productivity-adjusted manufacturing wages in the U.S., meanwhile, are up 2% in the U.S. in 2015 compared to a rise of 26% between 2004 and 2014.

Meanwhile, a second study indicates that the U.S. is becoming a more attractive location for manufacturers to nearshore production, perhaps because of improving cost competitiveness. A survey of 248 manufacturing and distribution executives in the U.S. and Western Europe by consulting form AlixPartners found that 40% of North American leaders say they have recently nearshored manufacturing production or are in the process of doing so.

Fifty-five percent of North American respondents described the U.S. as the most attractive nearshoring destination, up from 42% who said so last year. Mexico was next at 31%, down from 49% three years ago.